Indian cotton exports to Pakistan slump amid tensions - traders

A farmer harvests cotton in his field at Rangpurda village in Gujarat, October 20, 2015.Amit Dave/Files

MUMBAI/KARACHI (Reuters) - Rising hostilities between India and Pakistan have brought their $822 million-a-year trade in cotton to a juddering halt, as traders who are worried about uncertainty over supplies and driven by patriotism hold off signing new deals.

The nuclear-armed rivals have seen tensions ratchet up in the past few months over the disputed territory of Kashmir, and cotton traders in both countries said they were watching developments along the de facto border with alarm.

Pakistan, the world's third-largest cotton consumer, usually starts importing from September, but three Indian exporters said the number of inquiries had slowed to a trickle in the last two weeks.

In the clearest sign yet of souring relations affecting commerce, Pakistan-based importers also said they were not buying.

"At the moment there is no cotton trade. It's at standstill. There is uncertainty that, God forbid, if war breaks out, what will happen?" said Ihsanul Haq, chairman of the Pakistan Cotton Dealers Association.

Pakistan Cotton Commissioner Khalid Abdullah said a "low quantum of trade activity is still taking place."

He said the Pakistan government had not directed traders to stop buying Indian cotton and expected trade to normalize when tensions eased.

Indian government officials said they had not yet noticed trading had stopped.

But some Indian officials said last week that Prime Minister Narendra Modi's government was considering whether it should choke trade with Pakistan to put pressure on its neighbour, even though the trade balance is in India's favour.

INDIA'S BIGGEST COTTON BUYER

Trade between India and Pakistan, which have fought three wars since their independence from British rule in 1947, is small.

In the 2015/16 fiscal year ending on March 31, official trade between the two was $2.6 billion. Cotton is the largest component of that total.

It is not clear whether other goods and commodities traded between the two, such as jewellery and dry fruits, have been hit by the escalation in hostilities as well, but the disruption to cotton shipments is potentially significant.

In the crop year ended Sept. 30, Pakistan was India's biggest cotton buyer after its own crop was hit by drought and whitefly pest.

It imported 2.5 million bales from India, and supported Indian cotton prices at a time when China was cutting imports, traders said.

Lower purchases by Pakistan this year could hurt exports from the world's biggest producer of the fibre and put pressure on Indian prices, but could also help rival cotton suppliers like Brazil, the United States and some African countries.

Chirag Patel, chief executive officer of Indian exporter Jaydeep Cotton Fibers, said the country could export 5 million bales in the 2016/17 crop year, but exports could plunge to 3 million bales without Pakistani imports.

An exporter based in Mumbai estimated that Pakistan will need to import at least 3 million bales in 2016/17, and India will have a surplus of around 8 million bales.

"As soon as the (political) situation improves, cotton trade will definitely resume between the two countries," said Haq of the Pakistan Cotton Dealers Association.

But for now, traders on both sides of the border said the environment was not conducive to doing business.

"Many cotton exporters are not interested in selling cotton to Pakistan. They are trying to find other markets," said Pradeep Jain, a ginner based in Jalgaon in the western state of Maharashtra.

Shahzad Ali Khan, chairman of Pakistan Cotton Ginners Association, referred to a move by the Indian Motion Picture Producers' Association (IMPPA), a small filmmakers' body, last week, banning their members from hiring Pakistani actors.

"India is banning Pakistani artists, so how can it expect us to buy cotton from India?" Khan said.

"In various forums Pakistani traders are saying they will not buy cotton from India this year. Even if they need to pay extra, they will pay and buy it from other suppliers."